Valuation Problems Problems 1. A project will cost a company $8,0m and have the following cash flows: Year 1: $2.0m, Year 2: $3.0m, and Year 3: $4.0m. The company has the following characteristics: Kd=7.00%, Beta=1.3, Debt as percentage of capital stack=80%, risk free=3.00%, S&P 500 expected return = 10%, and tax rate = 35%. Should this project be undertaken by the company (the "why" is most important)? 2. You areto pay $8.0m and will receive $4.0m at the end of the first year and $5.0m at the end of the second year. What is the Inn for this transaction (calculate by hand!)? 3. The efficiency for a project as calculated by the coefficient of variation is 1.5. What is the Return of Capital, i.e. PjGain) (the assumption of a normal distribution is valid)? 4. For an investment of$5.0m, Catherine can earn a $2.0m at the end of the first year, $2.5m at the end of the second year, and $1.5m at the end ofthe third year. Assuming her personal discount rate is 10%, what is the NPV of this investment? (must complete by hand showing all work) 5. The following sample of numbers, {5, 6, 9, 3, 4}, has been provided. By hand, showing all work, calculate the standard deviation. 6. Compute the IRR for a cash flow stream that has CF = 3.5m, CF: = 2.0m, and CF: = 2.0m by hand. Draw cash flow stream and show all work, 7. Compute the MIRR for a cash flow stream that has CF = 4.0m, CF; = 1.0m, CF; = 2.0m, and CF: z 3.0m by hand, i.e. show all work. (Hint: the reinvestment rate is 5.00%) 8. Compute the NPV for a cash flow stream that has CE, = 8.0m, CF; = 2.0m, CF; = 4.0m, and CF: = 5.0m by hand, i.e. show all work. (Hint: the discount rate is 8.00%) (Double Hint: Show ALL work!) 9. Calculate the PjLoss) for the scenario for the project as listed below: Economic Scenario Proba bilin of Outcome Recession 5.00% ($60.0 million) Below Average 20.0% ($30.0 million) Average 50.0% $10.0 million Above Average 20.0% $15.0 million Boom 5.00% $25.0 million Calculate the project's expected NPV, standard deviation, coefficient of variation, and P(Loss). Valuation Problems 10, Compute the Inn for a cash flow stream that has CFo = 7.0m, CF) a 4.0m, and CF: = 6.0m by hand. Draw cash flow stream and show all work